The pros and cons of partnerships

Partnerships have helped establish successful businesses, but they can just as easily go the other way. Partnership decisions must be made with great care.

Before entering into a partnership or dismissing a partnership opportunity out of hand, take a look at the full impact of having a partner. Every situation is different.

When you look at the pros and cons, your conclusion may surprise you.

On the upside, partners:


  • Share the risk, responsibility, and work
  • Invest financially in the business
  • Deliver complementary skills
  • Bring a network of contacts to benefit the business
  • Provide support and motivation

On the downside, partners:


  • Take a share of the profits
  • May not have the same values or work ethic as you
  • Could leave you dangling with liabilities or lawsuits
  • Have a say in business decisions whether you agree with their opinion or not
  • Can negatively affect your reputation
  • Will be a person you must work with every day

Are you meant to be a partner? Who should you choose?


Partnership decisions are very unique. To make partnership decisions, you need to know yourself well.

Here are a few questions to consider:

  • Do you want the spotlight all to yourself? If yes, select a partner that does not want it at all.
  • Do you prefer to excel outside of the spotlight? You might be wise to choose a partner who likes a high profile.
  • Are you a clear communicator? If not, you need a partner who is especially skilled in this area.
  • Are you afraid of conflict? Since conflict is inevitable in a partnership, you may need to go solo.
  • Is it your way or the highway? If yes, partners are probably not for you.

Partners should share values and ethics


Resentment, often the result of values and ethics that are not shared, can destroy a partnership. When choosing a partner, consider these questions to reduce your risk of resentment:

  • Do you share the same vision for the future of the business?
  • Do you share an understanding of how partners will be paid?
  • Do you have a similar work ethic?
  • Are your exit strategies compatible?
  • Is the way you want to treat customers and employees similar?
  • Do you respect each other?
  • In your gut, are you a good fit?

Get your agreement in writing


It's easier to form a partnership than to dissolve one that isn't going well. That's why it's important to clarify, in writing, the terms of your partnership.

Get your lawyer and accountant involved in the agreement, and ensure that these points are covered:

  • Financial investments into the business
  • Division of responsibility
  • How profits will be shared
  • Dispute resolution process

Partnerships can expand your potential for success or drive your firm into the ground, so set it up with care and tend to it well.

 

Before you take action on any of the information above, we recommend consulting with a qualified business advisor that understands your unique needs and situation for your specific business and/or personal plans.